Rhododendron Holdings, L.L.C. v. Harris , 2021 Ohio 147 ( 2021 )

[Cite as Rhododendron Holdings, L.L.C. v. Harris, 2021-Ohio-147.]
IN THE COURT OF APPEALS OF OHIO
SECOND APPELLATE DISTRICT
MONTGOMERY COUNTY
RHODODENDRON HOLDINGS, LLC, :
et al. :
: Appellate Case No. 28814
Plaintiffs-Appellants :
: Trial Court Case No. 2017-CV-5825
v. :
: (Civil Appeal from
THOMAS BRADLEY HARRIS, et al. : Common Pleas Court)
:
Defendants-Appellees :
...........
OPINION
Rendered on the 22nd day of January, 2021.
...........
JAMES H. GREER, Atty. Reg. No. 0046555 and MATTHEW M. SUELLENTROP, Atty.
Reg. No. 0089655, 6 North Main Street, Suite 400, Dayton, Ohio 45402
Attorney for Plaintiffs-Appellants
DANIEL J. RUDARY, Atty. Reg. No. 0090482, 75 East Market Street, Akron, Ohio 44308
Attorney for Defendants-Appellees
.............
HALL, J.
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{¶ 1} Rhododendron Holdings, LLC appeals from the trial court’s entry of summary
judgment against it on its second amended complaint, which alleged trade-secret
violations and raised numerous claims against the appellees.1
{¶ 2} Rhododendron advances four assignments of error. First, it contends the trial
court erred in entering summary judgment without first ruling on a pending motion to
compel discovery. Second, it claims the trial court erred in entering summary judgment
on two counts in the second amended complaint alleging violations of the Ohio Uniform
Trade Secrets Act. Third, it argues that the trial court erred in dismissing with prejudice
under Civ.R. 56 two counts alleging breach of contract. Fourth, it asserts that the trial
court erred in dismissing three other counts with prejudice under Civ.R. 56 where the
appellees’ summary-judgment motion simply incorporated by reference arguments raised
in a prior Civ.R. 12(B)(6) motion to dismiss.
{¶ 3} The present appeal stems from Rhododendron’s 74-page, 15-count second
amended complaint filed on April 15, 2019. That complaint raised legal claims against
appellees Thomas Bradley Harris, Andrew Rynearson, John Diamond, The Progressive
Orthopedic Company, LLC, and Modal Manufacturing Company, LLC. Despite the
lengthy complaint, the detailed history set forth in the parties’ briefs, and the existence of
thousands of pages of exhibits and depositions, the essential issues of fact and law
underlying the present appeal are relatively narrow.
1 We note that the June 4, 2020 notice of appeal in this case actually was filed by
Rhododendron and a third-party defendant, Douglas S. Hawkins, who apparently is
challenging the trial court’s denial of a competing summary-judgment motion. For ease of
reference, we will refer to the appellants collectively as “Rhododendron.”
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{¶ 4} The record reflects that a company called NovoSource developed,
manufactured, and sold FDA-approved artificial knee and hip replacements. Appellees
Harris, Diamond, and others were directors of NovoSource. Diamond also served as the
company’s general counsel. In addition to his duties at NovoSource, Harris played a
leading role in other companies, including Skeleton Crew Manufacturing, LLC (“SCM”).
NovoSource and SCM were parties to a distribution agreement under which SCM
purchased and resold NovoSource products. Part of that agreement gave SCM a
conditional, non-exclusive license to manufacture and sell NovoSource products if
NovoSource ceased operations.
{¶ 5} In order to market its products, NovoSource required “510(k) clearance” from
the FDA. That streamlined process involved developing a product from an existing device
so that the two products were “substantially equivalent” although not necessarily identical.
NovoSource ultimately created two knee implants and two hip implants through the 510(k)
process and spent several million dollars developing the underlying intellectual property
known as “design-history files.”
{¶ 6} When NovoSource began marketing its devices, SCM was its biggest
distributor. Harris subsequently formed The Progressive Orthopedic Company, LLC
(“TPOC”) in 2013, and TPOC acquired SCM in its entirety. In addition to his role as
NovoSource’s general counsel, Diamond served as TPOC’s outside legal counsel.
NovoSource continued its business relationship with the combined TPOC/SCM.
{¶ 7} Later in 2013, TPOC/SCM fell behind on payments to NovoSource, causing
or contributing to financial distress for NovoSource. Diamond resigned from his role as a
NovoSource board member and as the company’s general counsel in February 2014.
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Around that time, NovoSource’s largest secured lender, the Dayton Regional Signature
Fund, threatened to sue NovoSource and to foreclose on a $1.12 million loan to the
company. Given the uncertainty surrounding NovoSource’s future, Harris also began
seeking to obtain NovoSource’s design-history files for his own use. Harris made multiple
requests for the files between January and June 2014.
{¶ 8} NovoSource CEO Andrew Cothrel discussed giving Harris the files with
NovoSource board chairman Harold Linville, who opposed the idea. While Harris was
seeking the design-history files, NovoSource began exploring a sale of the company to
salvage some value. In July 2014, healthcare company Cardinal Health agreed to buy
NovoSource for $12 million. The proposed transaction needed approval from
NovoSource’s board of directors, which included Harris. It was known that Cardinal Health
was not going to use TPOC/SCM as a distributor if the sale occurred. Cothrel feared that
Harris might vote to block the sale. Cothrel also knew Harris claimed a right to the
NovoSource design-history files under the terms of SCM’s earlier distributor agreement
with NovoSource. Cothrel additionally knew that Cardinal Health viewed Harris’ claimed
right to the design-history files as a potentially deal-killing issue.
{¶ 9} Cothrel eventually decided to send Harris NovoSource’s design-history files
on a flash drive. The files were sent to “Brad Harris/The Progressive Orthopedic
Company” in North Palm Beach, Florida on August 25, 2014. When he sent the files,
Cothrel knew that Harris would not be using them on behalf of NovoSource. Rather,
Cothrel knew that Harris wanted the files to help him pursue a post-NovoSource life.
According to Cothrel, he and Harris agreed to limitations on Harris’ use of the design-
history files. One such restriction was that any product Harris developed could not be
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identical to a NovoSource product. But Cothrel did not sent Harris or TPOC anything in
writing on August 25, 2014 or later placing restrictions on the use of the design-history
files. Cothrel nevertheless believed that adequate protections were in place to maintain
the overall secrecy and confidentiality of the design history files when he gave them to
Harris.
{¶ 10} After receiving the design-history files, Harris used them to pursue TPOC’s
own 510(k) submissions to the FDA. Beginning in September 2014, TPOC began
applying to the FDA for 510(k) clearances based on NovoSource’s knee and hip designs.
TPOC’s applications were identical to NovoSource’s earlier applications, and the products
TPOC later manufactured after obtaining FDA approval were essentially identical to
NovoSource’s products. In January 2015, NovoSource’s board of directors learned that
TPOC had submitted 510(k) applications based on NovoSource’s designs. At some point,
the NovoSource design-history files were transferred from TPOC to Modal Manufacturing
Company, LLC, with which Harris also was associated.
{¶ 11} Several months before Cothrel sent Harris the NovoSource design-history
files, Rhododendron acquired the notes securing the Dayton Regional Signature Fund’s
$1.12 million loan to NovoSource. In December 2014, Rhododendron sued NovoSource
to foreclose on the notes and received a $3 million cognovit judgment. Rhododendron
later sought assurances that NovoSource had not allowed TPOC or any other third party
to access NovoSource’s design-history files. Cothrel responded by telling NovoSource’s
counsel to make no representation regarding whether TPOC had access since several
former employees could have shared something with Harris. At that time, Cothrel did not
disclose to Rhododendron that he had shared the files with Harris. In April 2015,
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Rhododendron again expressed concern that NovoSource had allowed TPOC to use the
design-history files. Cothrel ultimately disclosed his transmission of the files to
Rhododendron principal Doug Hawkins while out for a drink in September 2017.
{¶ 12} By July 2015, NovoSource had ceased to operate and went into
receivership. In the summer of 2017, the receiver sold NovoSource’s assets to
Rhododendron in satisfaction of the $3 million cognovit judgment. Rhododendron filed its
initial complaint in the above-captioned case in December 2017. Thereafter,
Rhododendron filed first and second amended complaints. Portions of the second
amended complaint later were voluntarily dismissed. Rhododendron also filed a motion
to compel discovery, and the defendants filed a Civ.R. 12(B)(6) motion for partial
dismissal. While the motion to compel and the Civ.R. 12(B)(6) motion remained pending,
the parties filed cross-motions for summary judgment on Rhododendron’s remaining
claims.
{¶ 13} On May 15, 2020, the trial court sustained the defendants’ motion for
summary judgment and overruled Rhododendron’s competing motion. In support of its
decision, the trial court incorporated by reference and adopted all of the defendants’
summary judgment briefing and arguments. The trial court amended its summary
judgment order nunc pro tunc on May 18, 2020 to make clear that it had entered summary
judgment on all remaining counts of Rhododendron’s second amended complaint. The
trial court’s entry of summary judgment included Civ.R. 54(B) certification due to the
existence of one or more remaining counterclaims or third-party claims by the defendants.
This timely appeal followed.
{¶ 14} In its first assignment of error, Rhododendron challenges the trial court’s
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entry of summary judgment against it without first ruling on its pending motion to compel
discovery.
{¶ 15} The record reflects that Rhododendron moved to compel the production of
certain documents on July 30, 2019. Thereafter, the defendants moved for summary
judgment in January 2020. The motion to compel remained pending when the trial court
sustained the defendants’ summary-judgment motion on May 15, 2020. On appeal,
Rhododendron’s entire substantive argument regarding the motion to compel is as
follows: “In failing to rule on Rhododendron’s Motion to Compel, the trial court denied
[Rhododendron] its procedural due process rights. Rhododendron was denied the
opportunity to explore a critical issue in the case and the opportunity to obtain perhaps
dispositive discovery materials. Consequently, the trial court’s omission constitutes
reversible error.” (Appellant’s Brief at 14.)
{¶ 16} We find Rhododendron’s argument to be unpersuasive. “When a trial court
enters summary judgment without expressly determining a pending motion, the motion
impliedly is denied. * * * Where the pending motion is a motion to compel, the party
opposing summary judgment must seek a delay of the trial court’s ruling pursuant to
Civ.R. 56(F) or otherwise include in their response to the motion for summary judgment
some allegation of prejudice as a result of the trial court’s failure to rule.” Polivka v. Cox,
10th Dist. Franklin No. 02AP-1364, 2003-Ohio-4371, ¶ 23.
{¶ 17} Here Rhododendron has not identified anywhere in the record where it
sought a delay under Civ.R. 56(F) or otherwise alleged prejudice as a result of the trial
court’s considering the defendant’s summary-judgment motion without first resolving the
motion to compel. This failure by Rhododendron “precludes a finding of prejudice and
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results in waiver of the issue.” Boulder Capital Group, Inc. v. Lawson, 2d Dist. Clark No.
2014-CA-58, 2014-Ohio-5797, ¶ 34. The first assignment of error is overruled.
{¶ 18} In its second assignment of error, Rhododendron contends the trial court
erred in entering summary judgment against it on counts three and four of the second
amended complaint. These counts alleged violations of the Ohio Uniform Trade Secrets
Act, R.C. 1333.61, et seq. With regard to count three, Rhododendron challenges the entry
of summary judgment on its claim against Harris for misappropriating trade secrets. With
regard to count four, Rhododendron challenges the entry of summary judgment on its
claim against Rynearson and Diamond for misappropriating trade secrets.
{¶ 19} Rhododendron advances six arguments under its second assignment of
error. First, it contends the trial court engaged in impermissible fact-finding and failed to
apply Civ.R. 56 properly. Second, it claims the trial court erred in its application and
analysis of the Ohio Uniform Trade Secrets Act concerning disclosures and secrecy
measures. Third, it asserts that genuine issues of material fact exist as to whether
NovoSource voluntarily disclosed its design-history files to Harris and, in so doing,
destroyed trade-secret protections or whether the existence of adequate secrecy
measures preserved trade-secret protections. Fourth, Rhododendron argues that the trial
court erred in overruling its own competing motion for summary judgment. Fifth, it
maintains that the trial court erred in its analysis and application of the Ohio Uniform Trade
Secrets Act because “use” is a method of misappropriation. Sixth, it contends genuine
issues of material fact exist as to whether count four is time barred as against Diamond.
{¶ 20} We begin our analysis with the language of the Ohio Uniform Trade Secrets
Act, R.C. 1333.61, et seq. It defines a “trade secret” as follows:
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(D) “Trade secret” means information, including the whole or any
portion or phase of any scientific or technical information, design, process,
procedure, formula, pattern, compilation, program, device, method,
technique, or improvement, or any business information or plans, financial
information, or listing of names, addresses, or telephone numbers, that
satisfies both of the following:
(1) It derives independent economic value, actual or potential, from
not being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its disclosure
or use.
(2) It is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
R.C. 1333.61(D)
{¶ 21} The trade-secrets act defines “misappropriation” as any of the following:
(1) Acquisition of a trade secret of another by a person who knows
or has reason to know that the trade secret was acquired by improper
means;
(2) Disclosure or use of a trade secret of another without the express
or implied consent of the other person by a person who did any of the
following:
(a) Used improper means to acquire knowledge of the trade secret;
(b) At the time of disclosure or use, knew or had reason to know that
the knowledge of the trade secret that the person acquired was derived from
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or through a person who had utilized improper means to acquire it, was
acquired under circumstances giving rise to a duty to maintain its secrecy
or limit its use, or was derived from or through a person who owed a duty to
the person seeking relief to maintain its secrecy or limit its use;
(c) Before a material change of their position, knew or had reason to
know that it was a trade secret and that knowledge of it had been acquired
by accident or mistake.
R.C. 1333.61(B).
{¶ 22} The trial court disposed of Rhododendron’s complaint by entering summary
judgment in favor of the defendants-appellees. We review a trial court's ruling on a
summary-judgment motion de novo. Schroeder v. Henness, 2d Dist. Miami No. 2012-CA-
18, 2013-Ohio-2767, ¶ 42. Under Civ.R. 56(C), a movant is entitled to summary judgment
when the movant demonstrates “that there is no issue as to any material fact, that the
moving party is entitled to judgment as a matter of law, and that reasonable minds can
come to but one conclusion, and that conclusion is adverse to the nonmoving
party.” Miller v. Bike Athletic Co., 80 Ohio St.3d 607, 617, 687 N.E.2d 735 (1998).
{¶ 23} In its first argument under the second assignment of error, Rhododendron
contends the trial court engaged in impermissible fact-finding when it adopted and
incorporated by reference the entirety of the appellees’ summary judgment filings.
Rhododendron notes that summary judgment motions themselves are not “evidence.”
Rhododendron argues that the trial court could not have adopted the appellees’ legal
arguments as its own without also adopting the appellees’ version of the facts and
construing those facts in favor of the appellees. To the extent that the trial court did so,
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Rhododendron contends it violated Civ.R. 56(C).
{¶ 24} Upon review, we find the foregoing argument to be unpersuasive. As an
initial matter, the trial court’s act of entering summary judgment by adopting the appellees’
entire summary judgment filings is not particularly helpful. But it also does not constitute
per se reversible error. We have recognized that a trial court is not required to issue
findings of fact or conclusions of law when ruling on a summary judgment motion. Huber
v. Mues, 2d Dist. Montgomery No. 2011-CA-75, 2012-Ohio-2540, ¶ 8-9. In Huber, we
affirmed the trial court’s entry of summary judgment where, as here, it adopted the
reasoning in the appellee’s summary judgment memorandum.
{¶ 25} We note too that the trial court did make limited findings to explain why it
granted the appellees summary judgment on counts three and four of the second
amended complaint. These findings were sufficient to facilitate appellate review. In
particular, the trial court reasoned:
Counts III and IV of Plaintiff’s Second Amended Complaint for
violation of Ohio’s Uniform Trade Secrets Act are HEREBY DISMISSED
WITH PREJUDICE because NovoSource voluntarily disclosed its design
history files to Harris/TPOC thereby destroying any trade secret protection
that might otherwise have existed; NovoSource’s purported efforts to
maintain secrecy of its design history files are objectively unreasonable in
light of voluntarily providing those files to Harris/TPOC for their own use;
Plaintiff’s OUTSA claim against Rynearson is unsupported by any credible
evidence that Rynearson acquired or disclosed the design history files with
any knowledge that they were acquired by improper means; Plaintiff’s
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OUTSA claim against Diamond is unsupported by any evidence that
Diamond acquired or disclosed any of NovoSource’s purported trade
secrets and, in any event, the claim is time-barred.
(May 15, 2020 Order at 2.)
{¶ 26} As for whether the trial court erred in adopting the appellees’ arguments,
resolution of that issue depends on whether those arguments were predicated on
undisputed material facts. Under its first argument, Rhododendron asserts in the abstract
that genuine issues of material fact exist. But it does not identify any particular factual
dispute that the trial court overlooked. Consequently, we will proceed to Rhododendron’s
remaining arguments, which are more specific.
{¶ 27} Rhododendron’s second argument challenges the trial court’s finding that
NovoSource’s voluntary disclosure of its design-history files to Harris/TPOC destroyed
trade-secret protection that otherwise existed. Construing the evidence most strongly in
its favor, Rhododendron argues that the limited, one-time disclosure occurring in this case
did not destroy the trade-secret status of the design-history files or, at a minimum, that a
genuine issue of material fact exists. For their part, the appellees insist that NovoSource’s
disclosure to Harris for his own benefit did destroy trade-secret protection for the design-
history files as a matter of law.
{¶ 28} Upon review, we find this aspect of Rhododendron’s argument to be
persuasive. As a threshold matter, we agree with Rhododendron that a trier of fact could
find that NovoSource’s design-history files at least initially qualified as a “trade secret”
under R.C. 1333.61(D). The real issue raised by Rhododendron’s second argument is
whether Cothrel’s act of disclosing those files to Harris destroyed existing trade-secret
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protection as a matter of law. The plain language of R.C. 1333.61(B) persuades us that it
did not. As set forth above, R.C. 1333.61(B) generally defines misappropriation of a trade
secret to include improper acquisition, disclosure, or use of a trade-secret of another.
{¶ 29} We see no genuine issue of material fact as to whether Cothrel voluntarily
disclosed the design-history files to Harris, and Harris likewise did not improperly acquire
them as a matter of law. Indeed, Cothrel’s own deposition established that he elected to
give Harris the files to help Harris “advance his post-NovoSource life” and “get started
charting his own destiny away from NovoSource.” (Cothrel depo. at 232, 236.) We note,
however, that R.C. 1333.61(B) also defines misappropriation to include the improper
“use” of a trade secret. If Cothrel’s disclosure to Harris necessarily negated the files’ trade-
secret status, then it would not be possible for Harris to misappropriate the files by
improperly using them. By defining the misappropriation of a trade secret to include
impermissible “use” by a person to whom the secret has been disclosed, the statute
recognizes that the disclosure of a trade secret to a single person does not necessarily
destroy its trade-secret status.2 If the rule were otherwise, the information subsequently
“used” by the recipient could not be a trade secret.
{¶ 30} The foregoing analysis leads directly into Rhododendron’s third argument,
which lies at the heart of the parties’ dispute. Rhododendron contends the design-history
files retained trade-secret protection because Harris was restricted or limited in his use of
2 We might reach a different conclusion if Cothrel had made a general public disclosure
of the design-history files. See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002, 104
S.Ct. 2862, 81 L.Ed.2d 815 (1984) (“Information that is public knowledge or that is
generally known in an industry cannot be a trade secret. * * * If an individual discloses his
trade secret to others who are under no obligation to protect the confidentiality of the
information, or otherwise publicly discloses the secret, his property right is extinguished.”).
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them. Construing the evidence most strongly in its favor, Rhododendron claims a trier of
fact reasonably might find such restrictions and limitations to be imposed by fiduciary
duty, contract, and an express agreement between Cothrel and Harris.
{¶ 31} To resolve Rhododendron’s argument, we turn first to R.C. 1333.61(B)(2),
which identifies the circumstances under which a trade secret might be misappropriated
through improper “use.” As relevant here, R.C. 1331.61(B)(2)(b) defines
“misappropriation” to include use of a trade secret without express or implied consent by
a person who, at the time of his use, knew or had reason to know that his knowledge of
the trade secret “was acquired under circumstances giving rise to a duty to maintain its
secrecy or limit its use[.]”
{¶ 32} In their motion for summary judgment, which the trial court adopted in full,
the appellees claimed that Cothrel voluntarily sent Harris the design-history files “without
any restriction on their use.” On appeal, Rhododendron challenges this adopted finding
by the trial court. Rhododendron argues that a duty to maintain secrecy arose through a
fiduciary duty Harris owed to NovoSource based on his status as a member of its board
of directors. We note, however, that Cothrel did not sent the files to Harris for use in his
capacity as a member of NovoSource’s board. Cothrel knew that Harris would not be
using the files on behalf of NovoSource. To the contrary, Cothrel admittedly sent the files
because he knew Harris’ company, TPOC, was about to lose its status as a distributor for
NovoSource, and he wanted to help Harris start a “post-NovoSource life.” In light of
Cothrel’s decision to send the files knowing that Harris would not use them in his capacity
as a NovoSource director, we see no genuine issue of material fact as to whether Harris’
fiduciary relationship with NovoSource imposed a duty of secrecy.
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{¶ 33} Rhododendron next suggests that an obligation of secrecy arose by
contract. This argument relies on a September 2013 non-disclosure agreement (“NDA”)
between NovoSource and Harris’ company, TPOC. We agree with the appellees,
however, that this agreement did not govern Cothrel’s disclosure of the design-history
files. Harris was not a party to the NDA, and Rhododendron’s position in this case is that
the files were sent to Harris personally, not to TPOC.3 It is also questionable whether the
boilerplate NDA, which purported to cover “all information,” was specific enough to
preserve trade-secret protection for the design-history files. But most importantly, even if
the NDA could apply here, it only covered information disclosed by NovoSource “in
furtherance of evaluating the Business Relationship.” The NDA defined “Business
Relationship” as “a possible business relationship whereby [TPOC] invests in
NovoSource’s business or engages in some similar transaction.” Cothrel’s disclosure to
Harris had nothing to do with a possible business relationship, investment, or similar
transaction between NovoSource and TPOC. Therefore, we see no genuine issue of
material fact as to the applicability of the NDA, which was not implicated by Cothrel’s
disclosure to Harris.
{¶ 34} In our view, the only real issue is whether a trier of fact could find that Harris
misappropriated the design-history files by exceeding the scope of use to which he and
Cothrel purportedly had agreed. As set forth above, misappropriation under R.C.
1331.61(B)(2)(b) includes using trade-secret information without express or implied
consent where knowledge of the trade secret “was acquired under circumstances giving
3 We note, however, that Cothrel sent the files to “Brad Harris/The Progressive
Orthopedic Company.”
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rise to a duty to maintain its secrecy or limit its use[.]” (Emphasis added.) Even if no
fiduciary duty or NDA imposed secrecy restrictions, Harris still could be liable for trade-
secret misappropriation under R.C. 1331.61(B)(2)(b) if his use of the trade secret was
without Cothrel’s express or implied consent and Harris knew or had reason to know that
he had acquired the information under circumstances obligating him to limit his use of the
information. On this issue, the trial court erred in making an adopted finding that Cothrel
gave Harris the design-history files without imposing “any restriction on their use.”
{¶ 35} In its appellate brief, Rhododendron cites evidence establishing a genuine
issue of material fact as to whether Cothrel and Harris had agreed to limitations on Harris’
use of the design-history files and whether Harris exceeded those limitations. In his
deposition, Cothrel claimed the purpose of his disclosure was to enable Harris to use the
“template” of the design-history files “to get things in motion.” According to Cothrel, Harris
was “incapable of handling design development and progression through the regulatory
traps of an orthopedic implant.” (Cothrel depo. at 226, 235.) That being so, Cothrel sent
Harris the files “to communicate to [Harris] that this is what [a 510(k)] looks like, this is the
package you have to put together. This is the testing you have to do. This is what a
design-history file looks like.” (Id. at 224.)
{¶ 36} Cothrel explained that he never intended for Harris to use NovoSource’s
design-history files to submit a “mirrored 510(k)” to the FDA for products essentially
identical to NovoSource’s. Moreover, Cothrel testified that Harris understood and agreed
that he was only permitted to pursue non-identical products that were not based on a
mirrored 510(k). (Id. at 223-224, 227.) Based on conversations with Harris leading up to
Cothrel’s disclosure of the design-history files, it “never entered [Cothrel’s] mind” that
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Harris subsequently would take NovoSource’s files and submit them to the FDA as part
of a mirrored 510(k) application. (Id. at 231, 235-236.) Nevertheless, Harris did use the
NovoSource files to obtain mirrored 510(k) clearances for TPOC through the FDA. (Id. at
238-239.) Cothrel testified that Harris’ actions with regard to the FDA submission violated
a “verbal agreement” the two men had when he gave Harris the files. (Id. at 329.)
{¶ 37} Viewed most strongly in Rhododendron’s favor, the evidence concerning
Harris’ use of NovoSource’s design-history files establishes a genuine issue of material
fact as to whether he misappropriated a trade secret under R.C. 1331.61(B)(2)(b) by
knowingly using the files without Cothrel’s consent in a way that violated a duty to limit
his use of the files. A trier of fact reasonably might find the existence of such a duty based
on Cothrel’s testimony about an oral agreement between Cothrel and Harris limiting
Harris’ use of the files. The credibility of Cothrel’s testimony on that issue is a matter for
the trier of fact to resolve. Therefore, the trial court erred in entering summary judgment
on counts three and four insofar as genuine issues of material fact exist regarding Harris’s
exceeding the permissible scope of his use of the design-history files on behalf of TPOC.
{¶ 38} In its fourth argument, Rhododendron contends the trial court erred in
overruling its own summary judgment motion. In the course of its argument,
Rhododendron suggests that the trial court improperly resolved genuine issues of
material fact. At the same time, however, Rhododendron claims it was entitled to
judgment as a matter of law because the record demonstrates conclusively that there was
no waiver of trade-secret protection when Cothrel disclosed NovoSource’s design-history
files to Harris.
{¶ 39} We find Rhododendron’s fourth argument to be unpersuasive for at least
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two reasons. First, as explained more fully in our resolution of Rhododendron’s third
argument, the record persuades us that genuine issues of material fact exist as to whether
Harris misappropriated a NovoSource trade secret through his use of the design-history
files. Those genuine issues of material fact preclude the entry of summary judgment for
Rhododendron or the appellees. Second, we note that a trial court’s denial of summary
judgment generally is not appealable. Hubbell v. Xenia, 115 Ohio St.3d 77, 2007-Ohio-
4839, 873 N.E.2d 878, ¶ 9. For these reasons, we reject Rhododendron’s fourth
argument.
{¶ 40} In its fifth argument, Rhododendron contends the trial court erred in entering
summary judgment in favor of appellees Andrew Rynearson and Jack Diamond on count
four of the second amended complaint. In particular, Rhododendron argues the existence
of a genuine issue of material fact as to whether Rynearson and Diamond
misappropriated NovoSource’s design-history files through their improper “use” of the
files.
{¶ 41} With regard to Rynearson, the second amended complaint named him as a
defendant only “in his capacity as Director of Engineering for The Progressive Orthopedic
Company, LLC and Modal Manufacturing Company, LLC.” (April 15, 2019 Second
Amended Complaint at caption.) Count four alleged that Rynearson was a senior product
development engineer at a company identified as “IDMS” when he signed engineering
and testing reports submitted to the FDA in connection with Harris’ mirrored 510(k)
submission. Count four also alleged that Rynearson knew or should have known that the
NovoSource IP included in TPOC’s 510(k) submissions, which included his prior work for
NovoSource, was acquired by improper means. Count four further alleged that Rynearson
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and others knew or should have known “that NovoSource did not give express or implied
consent for such use,” and that Rynearson and others “used and disclosed the
NovoSource IP through TPOC’s 510(k) submissions to the FDA.” As a result, count four
alleged that Rynearson was liable for trade-secret misappropriation.
{¶ 42} Upon review, we see no error in the trial court’s entry of summary judgment
in favor of Rynearson. Because he was sued in his corporate capacity as director of
engineering for TPOC and a related company, Modal, the sole basis for imputing liability
to him was by way of his employment with one of those companies. In the proceedings
below, however, Rynearson averred that he never had been employed by Modal and that
he was not employed by TPOC until January 2015. Thus, according to Rynearson’s
affidavit, he was not an employee of TPOC when Cothrel gave Harris NovoSource’s
design-history files in August 2014 or when those files were submitted to the FDA (i.e.,
“used” by Harris/TPOC) later that year.
{¶ 43} Based on evidence of Rynearson’s use of both personal and work e-mail
accounts around the time of his employment, Rhododendron suggests on appeal that he
may have worked for TPOC prior to January 2015. (Appellant’s Brief at 28-30.) Having
reviewed Rynearson’s entire deposition, including his discussion of his personal and work
email use, we fail to see how it supports a reasonable inference that he was employed
by TPOC prior to January 2015. (See, e.g., Rynearson December 6, 2019 depo. at 14-
15, 178, 190-193.) Rhododendron also asserts that Rynearson failed to comply with a
discovery request to search his personal email for additional relevant evidence. Assuming
that this is true, it does not support a reasonable inference that such a search would have
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established Rynearson’s employment by TPOC prior to January 2015.4 Even construing
the evidence in Rhododendron’s favor, we see no genuine issue of material fact regarding
when Rynearson began his employment with TPOC.
{¶ 44} In any event, regardless of Rynearson’s employment date, we see no basis
for a claim against him on the theory that he knew or should have known NovoSource’s
design-history files had been acquired by improper means, as alleged in count four. As
set forth above, Harris did not acquire the design-history files by improper means. Cothrel
voluntarily gave Harris the files. The only real question is whether Harris exceeded the
scope of his permissible use of the files in contravention of a purported oral agreement
he had with Cothrel. Although we have found a genuine issue of material fact as to
whether Harrris misappropriated the design-history files by using them improperly, we
see no evidence that Rynearson knew or should have known of any use restrictions
imposed by an oral agreement between Cothrel and Harris.
{¶ 45} In his deposition, Rynearson testified Harris already had filed 510(k)
applications with the FDA long before Rynearson began his employment with TPOC. After
Rynearson started working at TPOC, Harris repeatedly told him the company was
contractually entitled to use NovoSource’s design-history files for the 510(k)s once
NovoSource ceased being able to supply TPOC with inventory. (Rynearson December 6,
2019 depo. at 84-89, 170-172, 221, 246.) Rynearson did not question that explanation,
which was outside the scope of his engineering work. (Id. at 173.)
{¶ 46} On appeal, Rhododendron claims a genuine issue of material fact exists
4 And if Rhododendron thought additional discovery responses were necessary for it to
oppose summary judgment, it could have sought to delay the trial court’s ruling pursuant
to Civ.R. 56(F).
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regarding Rynearson’s professed lack of knowledge of any improper use of the design-
history files by Harris. In support, Rhododendron first cites deposition testimony from
Thomas Smith, who did consulting work for TPOC. On the cited pages, Smith explained
that Rynearson told him NovoSource and TPOC “did not depart amicably.” (Smith depo.
at 108.) Smith also discussed what Rynearson told “multiple” FDA reviewers who later
questioned NovoSource’s design-history files being part of the TPOC 510(k) submissions
from Harris. According to Smith, Rynearson told the FDA representatives: “NovoSource
was or is going out of business. Could not supply the product to [TPOC]. Part of a contract
that TPOC has with NovoSource stipulating * * * that they would be able to—they would
supply the product. And if this product could not be supplied, they had legal capability to
submit 510(k)s.” (Id. at 113.) In short, Smith recalled Rynearson representing to the FDA
that TPOC possessed the NovoSource design-history files because of a contract
“situation.” (Id.)
{¶ 47} Smith’s recollection is consistent with what Rynearson stated in his own
deposition. (See, e.g., Rynearson December 13, 2019 depo. at 13-14.) Rhododendron
claims the fact that multiple FDA reviewers asked questions about the presence of
NovoSource materials in the applications should have caused Rynearson to know that
the design-history files had been acquired through improper means. In our view, this is
not a reasonable inference for at least three reasons. First, the design-history files were
not “acquired” through improper means. Second, Rynearson’s response to the questions
apparently satisfied the FDA. Third, we see nothing in the FDA’s general inquiries that
should have made Rynearson aware of Harris exceeding the scope of an oral agreement
Harris purportedly had with Cothrel. Even construing the evidence in a light most
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favorable to Rhododendron, it simply is not reasonable to infer from the FDA’s inquiries
that Rynearson should have known about the alleged Cothrel-Harris oral agreement.
{¶ 48} Rhododendron also suggests that Rynearson’s responses to the FDA’s
inquires “changed” over time. But the record does not support a finding that his responses
changed in a meaningful way. Rhododendron cites one reference to a breach of contract
by NovoSource and another reference to NovoSource being insolvent. Of course,
insolvency by NovoSource is a logical reason for its inability to supply TPOC with
inventory in breach of a contract between the companies. In fact, that is precisely what
was discussed during Rynearson’s deposition. He was asked about an explanation to the
FDA involving “NovoSource filing for insolvency and thus having an inability to fulfil its
obligation.” (Rynearson December 6, 2019 depo. at 245.) Based on our review of the
record, we see no error in the trial court’s entry of summary judgment in favor of
Rynearson.
{¶ 49} Under its fifth argument, Rhododendron challenges the trial court’s entry of
summary judgment for Jack Diamond. As with its argument regarding Rynearson,
Rhododendron claims a genuine issue of material fact exists as to whether Diamond
“used” NovoSource’s design-history files while having reason to know that Harris had
misappropriated them. (Appellant’s Brief at 31.) Rhododendron argues at length that
Diamond made substantial investments in TPOC and Modal Manufacturing, a company
affiliated with Harris and TPOC, and eventually obtained the 510(k) clearances from
TPOC. Rhododendron also asserts that Diamond, an attorney, advised Harris and TPOC
in the dispute with NovoSource and positioned TPOC’s interests against NovoSource
both before and after resigning as NovoSource’s general counsel.
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{¶ 50} Once again, however, we see no evidence supporting a reasonable
inference that Diamond misappropriated NovoSource’s design-history files through
improper use. Assuming, purely arguendo, that any of Diamond’s various actions could
be found to constitute “use” of the files, we see no evidence establishing a genuine issue
of material fact as to whether Diamond knew or should have known that Harris’ own use
of the files exceeded the scope of an oral agreement with Cothrel. That being so, we fail
to see how Diamond himself can be liable for misappropriation through “use” by assisting
Harris. Consequently, the trial court did not err in entering summary judgment in favor of
Diamond.
{¶ 51} In the sixth argument under its second assignment of error, Rhododendron
contends genuine issues of material fact exist as to whether the trade-secret
misappropriation claim against Diamond was barred by the applicable statute of limitation.
This argument is moot in light of our determination that the trial court properly entered
summary judgment for Diamond on the merits of that claim.
{¶ 52} Based on the reasoning set forth above, Rhododendron’s second
assignment of error is sustained in part and overruled in part. The assignment of error is
sustained insofar as we have found a genuine issue of material fact as to whether Harris
misappropriated a trade secret under R.C. 1331.61(B)(2)(b) by knowingly using
NovoSource’s design-history files without Cothrel’s consent in a way that violated a duty
to limit his use of the files. The genuine issue of material fact involves Cothrel’s testimony
about the existence of an oral agreement with Harris limiting the permissible scope of
Harris’ use of the files and Harris’ violation of that agreement. In all other respects, the
second assignment of error is overruled.
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{¶ 53} In its third assignment of error, Rhododendron contends the trial court erred
in dismissing with prejudice under Civ.R. 56 two breach-of-contract claims asserted in
counts nine and ten of the second amended complaint.
{¶ 54} Rhododendron notes that the trial court dismissed the claims for lack of
standing based on arguments raised by the appellees in a prior Civ.R. 12(B)(6) motion to
dismiss. Rhododendron argues that, in so doing, the trial court improperly converted the
motion to dismiss into a motion for summary judgment. Rhododendron also argues that
a motion for summary judgment is not a proper mechanism for asserting lack of standing.
It further argues that a dismissal for lack of standing should have been without prejudice
rather than with prejudice. Finally, Rhododendron contends a genuine issue of material
fact exists as to whether it had standing to sue for breach of contract.
{¶ 55} Upon review, we find Rhododendron’s arguments to be unpersuasive. In
count nine of the second amended complaint, Rhododendron asserted a breach of
contract claim against SCM and TPOC. Rhododendron brought the claim as assignee
and successor in interest to the rights of NovoSource. Count nine alleged that SCM/TPOC
had breached the terms of a contractual “Forbearance Agreement” with NovoSource by
failing to make certain required monthly payments. Count ten of the second amended
complaint asserted a breach of contract claim against Harris and TPOC. Rhododendron
again brought the claim as assignee and successor in interest to the rights of
NovoSource. Count ten alleged that Harris and TPOC had breached a contractual non-
disclosure agreement with NovoSource by disclosing trade secrets.
{¶ 56} On May 10, 2019, the appellees moved to dismiss counts nine and ten
pursuant to Civ.R. 12(B)(6) on the basis that Rhododendron lacked standing to enforce
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the contracts or sue for breach. The appellees noted that Rhododendron was not a party
to any of the contracts. They then argued that the contracts were not among the
NovoSource assets that Rhododendron acquired. To the contrary, the appellees argued
that the contracts explicitly were excluded from the NovoSource assets that
Rhododendron acquired.
{¶ 57} The May 10, 2019 motion to dismiss remained pending when the appellees
moved for summary judgment on January 21, 2020. The appellees specifically sought
summary judgment on counts nine and ten, once again arguing that Rhododendron
lacked standing to enforce the contracts because (1) Rhododendron was not a party to
the contracts and (2) Rhododendron’s acquisition of NovoSource’s assets explicitly
excluded any and all contracts to which NovoSource was a party.
{¶ 58} On May 15, 2020, the trial court filed an order entering summary judgment
in favor of the appellees. In so doing, the trial court specifically adopted and incorporated
by reference “the authority, analysis, and evidentiary materials” contained in the
appellees’ motion for summary judgment, which included the argument that
Rhododendron lacked standing to enforce the contracts at issue.
{¶ 59} In light of the foregoing, we reject Rhododendron’s argument that the trial
court improperly converted the appellees’ motion to dismiss into a motion for summary
judgment. The appellees separately filed a motion to dismiss and a motion for summary
judgment. Both motions raised the issue of Rhododendron’s lack of standing to enforce
the contracts. In its May 15, 2020 order, the trial court made clear that it was resolving
the standing issue by ruling on the appellees’ summary-judgment motion. Contrary to
Rhododendron’s assertion on appeal, we see no reason why a lack of contractual
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standing cannot be raised and resolved through Civ.R. 56 where no genuine issue of
material fact exists. See, e.g., Asia-Pacific Futures Research Symposium Planning
Committee v. Kent State Univ., 2016-Ohio-2691, 63 N.E.3d 780, ¶ 26 (11th Dist.)
(affirming the entry of summary judgment on the basis that the appellant lacked standing
to sue on a contract).
{¶ 60} We also reject Rhododendron’s argument that the trial court’s dismissal for
lack of contractual standing should have been without prejudice. Rhododendron’s
argument is premised on the notion that a dismissal for lack of standing under Civ.R.
12(B)(6) is not a “merits” determination and, therefore, should be without prejudice to
refiling. (Appellant’s brief at 39.) Once again, however, the trial court did not dismiss
counts nine and ten under Civ.R. 12(B)(6). It entered summary judgment against
Rhododendron on those counts.
{¶ 61} Rhododedron cites A-1 Nursing Care of Cleveland, Inc. v. Florence
Nightingale Nursing, Inc., 97 Ohio App. 3d 623, 647 N.E.2d 222 (8th Dist.1994) for the
proposition that a Civ.R. 12(B) motion to dismiss is the only permissible way to resolve a
“standing” issue. In that case, the Eighth District found a Civ.R. 12 motion necessary
because the “standing” issue involved a jurisdictional question rather than a “merits”
determination. Id. at 626-627.
{¶ 62} In the present case, however, we are unpersuaded that whether
Rhododendron could sue for breach of contract involved a jurisdictional question. Unlike
jurisdictional standing, contractual standing “ ‘is assessed in conjunction with the merits
of the claim, not as a threshold issue.’ ” U.S. Bank Natl. Assn. for Registered Holders of
GE Commercial Mtge. Corp., Commercial Mtge. Pass-Through Certificates, Series 2006-
-27-
C1 v. Courthouse Crossing Acquisitions, LLC, 2017-Ohio-9231, 101 N.E.3d 1243, ¶ 41
(2d Dist.). “Although lawyers and courts occasionally state informally that an entity has
no ‘standing’ to enforce a contract if that entity is not a party to the contract or a third-
party beneficiary to it, such an entity’s inability to sue goes to the merits and does not
deprive courts of jurisdiction.” Yasuda Fire & Marine Ins. Co. v. Ciraco, 225 S.W.3d 894,
898 (Tex.App.2007); see also Cotton v. Certain Underwriters at Lloyd's of London, 831
F.3d 592, 594 (5th Cir.2016) (recognizing that contractual standing involves issues of
contract interpretation and goes to the merits of a claim). To the extent that the Eighth
District’s decision in A-1 Nursing Care may be read as reaching a contrary conclusion,
we find it unpersuasive.
{¶ 63} Finally, Rhododendron contends a genuine issue of material fact exists as
to whether it could sue for breach of contract. We disagree. Rhododendron purchased
most of NovoSource’s assets in 2017. The transaction resulted in the creation of a
Fiduciary Bill of Sale dated August 23, 2017. (Exhibit 1 to Rhododendron’s Second
Amended Complaint.) That document specifically identified which NovoSource assets
Rhododendron was purchasing. “Acquired Assets” included, among other things, “all
pending legal claims of the Company (whether pending or otherwise), claims, refunds,
causes of action, choses in action and rights of recovery with respect to the ‘Business,
Acquired Assets and Assumed Liabilities.’ ” (Id.) The Fiduciary Bill of Sale expressly
stated, however, that “Acquired Assets” “shall not include any Excluded Assets.” The Bill
of Sale then specified that among the Excluded Assets were “each and every Contract to
which the Company is a party or by which it is, or the Business of the Company or any of
the Acquired Assets are, bound.” (Emphasis added.) (Id.)
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{¶ 64} In short, the assets Rhododendron acquired from NovoSource did not
include “Excluded Assets,” and the Excluded Assets encompassed “each and every
Contract to which [NovoSource] is a party.” In the present case, Rhododendron is suing
for the breach of contracts with SCM, TPOC, and Harris to which NovoSource was a
party. Based on the clear, unambiguous language of the Fiduciary Bill of Sale, those
contracts were Excluded Assets and not purchased by Rhododendron. We note too that
Rhododendron did not acquire all of NovoSource’s legal claims. It only acquired claims
“with respect to” NovoSource’s “Business, Acquired Assets, and Assumed Liabilities.”
Because Acquired Assets did not include Excluded Assets, and Excluded Assets
encompassed “each and every Contract to which [NovoSource] is a party,” we see no
genuine issue of material fact as to whether Rhododendron could sue for breach of the
contracts at issue.
{¶ 65} In opposition to our conclusion, Rhododendron cites an affidavit from
NovoSource receiver Myron Terlecky attached to its own competing summary judgment
motion. Thereon, Terlecky avers: “When executing the Fiduciary Bill of Sale and
Intellectual Property Assignment as Receiver for NovoSource, Inc., it was understood and
intended that Rhododendron Holdings, LLC was assigned all legal claims and rights of
recovery that belonged to NovoSource, Inc., including claims for breach of contract.”
(Terlecky affidavit at paragraph 20, filed on January 21, 2020.) But regardless of
Terlecky’s intent and belief, Rhododendron could not have been assigned NovoSource’s
legal claims for breach of contract because all contracts to which NovoSource was a party
were explicitly excluded from the transaction. Terlecky’s averment fails to create a
genuine issue of material fact as it is contrary to the language of the Fiduciary Bill of Sale
-29-
itself. Where a document is clear and unambiguous, parol evidence may not be used to
contradict its terms. Rhodes v. Rhodes Indus., Inc., 71 Ohio App.3d 797, 804, 595 N.E.2d
441 (8th Dist.1991). As a matter of law, Rhododendron had no right to enforce the
contracts or sue for breach. Therefore, the trial court properly entered summary judgment
against Rhododendron on counts nine and ten. The third assignment of error is overruled.
{¶ 66} In its fourth assignment of error, Rhododendron contends the trial court
erred in dismissing with prejudice counts one, two, and fourteen of the second amended
complaint pursuant to Civ.R. 56.
{¶ 67} Rhododendron argues that the appellees did not seek summary judgment
on counts one, two, and fourteen. Instead, Rhododendron asserts that the appellees
moved for dismissal of those counts under Civ.R. 12(B)(6) and that the trial court later
improperly converted the motion to dismiss into a motion for summary judgment. This
argument lacks merit. The appellees’ summary-judgment motion specifically referenced
counts one, two, and fourteen and sought judgment in those counts under Civ.R. 56.
(January 21, 2020 Memorandum in Support of Summary Judgment at 13-14, 39.) In its
May 15, 2020 order disposing of Rhododendron’s claims, the trial court noted that the
case was before it on the competing summary judgment motions, which included the
appellees’ arguments about counts one, two, and fourteen.
{¶ 68} Rhododendron’s real complaint appears to be that the appellees’ summary-
judgment motion partially incorporated by reference arguments made in their earlier
motion to dismiss counts one, two, and fourteen. But the act of incorporating by reference
arguments made in a prior motion to dismiss did not “convert” the motion to dismiss into
one for summary judgment. We note too that Rhododendron engaged in the same
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practice when its competing summary judgment motion incorporated by reference
arguments raised in Rhododendron’s memorandum in opposition to the appellees’ motion
to dismiss. For example, at page 10 of its own January 21, 2020 motion for summary
judgment, Rhododendron asserted: “The right of Rhododendron Holdings, LLC to enforce
and sue upon the contracts at issue in this case is identified in Plaintiff’s May 23, 2019
Memorandum in Opposition to Defendants’ May 10, 2019 Motion to Dismiss Plaintiff’s
Second Amended Complaint[.] * * * Those arguments are specifically incorporated by
reference herein by Plaintiff and will not be reproduced in the interests of judicial
efficiency.” In any event, nothing prohibited either party from incorporating arguments by
reference and doing so did not convert a prior motion to dismiss into a motion for summary
judgment. The fourth assignment of error is overruled.
{¶ 69} Having sustained a portion of Rhododendron’s second assignment of error,
we affirm in part and reverse in part the judgment of the Montgomery County Common
Pleas Court and remand the case for further proceedings consistent with this opinion.
.............
TUCKER, P.J. and FROELICH, J., concur.
Copies sent to:
James H. Greer
Matthew M. Suellentrop
Daniel J. Rudary
Hon. Steven K. Dankof